ANNUAL REPORT 2019


The global economic environment in 2019

Global growth decreased in 2019, with global output expanding at a rate of just 2.6%, compared to 3.2% in 2018.

Major economies saw a decline in growth. The US experienced weaker business confidence, the unwinding of fiscal stimulus and an escalating trade war with China, while weak exports kept a lid on growth in the Eurozone.

In addition, production lines in the Eurozone car industry were adjusting to comply with new emission standards. Domestic demand remained fairly resilient as employment expanded and low inflation provided a boost to real incomes. The unemployment rate looks to have bottomed out at around 7.4%.

Over the course of the year, both the Federal Reserve (Fed) and the European Central Bank (ECB) took steps towards monetary loosening. As a result, credit growth in the Eurozone continued to recover, with credit conditions broadly unchanged over the year.

Emerging market economies also experienced weakening growth, with those in Asia feeling the impact of China’s trade tensions with the US, and a global decline in industrial output affecting emerging markets in Eastern Europe and Latin America.

In China, GDP growth slowed to 6.2%, with fiscal stimuli initiated in the second half of 2018 only partially compensating for weakening domestic demand and export growth.

In Latin America, growth almost stalled, with Argentina still in recession and Brazil seeing softening household consumption, shrinking investments and the after-effects of a mining disaster. In Mexico, political uncertainty and tough trade relations with the US, led to slowing private consumption and weakening business sentiment, both of which hampered growth.

'The number of company insolvencies around the world rose'
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For the first time in a decade, the number of company insolvencies around the world rose. While this is to be expected in a maturing business cycle, the global industrial downturn and US-China trade war compounded the challenges that businesses face. North America experienced the strongest rate of insolvency growth.

In the Eurozone, overall insolvencies decreased but the picture was mixed. Germany saw a fall in insolvencies despite weak manufacturing output, particularly in the car industry. Southern Europe had another year of strong economic performance, with insolvencies declining in most countries, including Portugal and Greece. Insolvencies also fell in Italy, although in the context of low economic growth and political uncertainty. There was however a rise in insolvencies in several countries including Spain, where the increase came despite another year of robust economic growth. In Northern Europe, lower external demand dampened growth in the Netherlands and Belgium, causing insolvencies to rise.

US insolvencies rose due to the strong dollar and unwinding of pro-cyclical fiscal policy, compounded by trade policy uncertainty. The UK too saw a sharp rise in insolvencies as labour costs increased and business confidence was rocked by Brexit-related uncertainty. Several advanced markets in Asia-Pacific, notably South Korea, Hong Kong and Singapore, felt the negative impact from the US-China trade war.

Among major emerging economies, insolvencies rose in Turkey and Brazil. Turkey’s economy came to a near standstill with a loss of confidence in the local currency (lira) accompanied by a sharp contraction in fixed investments. Brazil’s economic recovery was hampered by low domestic demand and the impact of a mining disaster. While the picture for Russia was more benign, it too suffered from weakening consumer demand, the depreciation of the rouble and a lower than expected oil price.

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